Tag Archives: trs-activecare

House Appropriations hears from TEA and TRS

The House Committee on Appropriations met Monday to hear from the Texas Education Agency (TEA) and Teacher Retirement System (TRS) on the issues of school safety, school finance, the teacher pension system, and active and retiree educator health insurance. Before delving into the meat of the hearing, Cmomittee Chairman John Zerwas (R-Fulsher) also announced membership of the subcommittees that will be overseeing separate subject areas of the budget.

The subcommittee on Article III that oversees public education funding will be chaired by Rep. Greg Bonnen, and include Vice-chair Armando Walle and Reps. Mary Gonzalez, Donna Howard, Matt Schaefer, Carl Sherman, Lynn Stucky, and Gary VanDeaver.

House Appropriations Committee meeting Feb. 4, 2019

Other subcommittees include: the subcommittee on Articles I, IV, V; the subcommittee on Article II; the subcommittee on Articles VI, VII, VIII; and a new subcommittee on  Infrastructure, Resiliency, and Investment.

The committee heard first from Texas Education  Commissioner Mike Morath on the topic of school safety, including physical precautions such as metal detectors and alarms. Morath noted there is no single investment in school safety that will address all current weaknesses and that the agency isn’t and hasn’t traditionally been tasked or resourced to help districts with regard to mental health components of school safety.

TEA’s Chief School Finance Officer Leo Lopez followed with a high-level overview of how public schools are funded. Lopez explained how the basics of tax rates, weights, allotments, and adjustments work to together to create a districts M&O entitlement; facilities funding; charter funding; and recapture. Also mentioned during the discussion were statutory quirks and system complexities like the fact that the basic allotment is set in statute, but legislators each session have the option of funding at higher levels through the appropriations bill. The committee also discussed how in 2011 the legislature created a mechanism called the Regular Program Adjustment Factor that allows lawmakers to decrease the entire Foundation School Program (FSP) entitlement for every district with a single adjustment.

TR) Executive Director Brian Guthrie walked committee members through pension fund operations. Guthrie explained the TRS board’s decision to lower the assumed rate of return last summer to 7.25 percent down from 8 percent, which came as a result of market forecasts and input from the fund’s actuary. This caused the funding period for pension fund liabilities to extend from 32 years up to 87 years. Under state law, the TRS fund cannot offer a cost of living adjustment (COLA) to retirees unless the amortization period noted above is within 31 years.

Guthrie noted that the agency is requesting a 1.8 percent increase in the contribution rate in order to achieve a 30-year amortization period, which would allow for the possibility of a future increase in benefits, such as a COLA. This would cost $1.6 billion for the biennium from all funds.

Responding to a question from Rep. Giovanni Capriglione, Guthrie estimated the average pension payment for a TRS annuitant to be about $2,000 per month. This average figure covers all classes of public education employees, including auxiliary staff, such as bus drivers and custodial staff. For classroom teachers who have worked in Texas schools for 30 years, that amount is closer to $4,000 per month.

Guthrie then explained the healthcare programs under the agency’s umbrella: TRS-Care for retired educators and TRS-ActiveCare for active educators. Healthcare costs have skyrocketed in Texas, despite rising at a level slightly below the national average. This resulted in a $1 billion shortfall for TRS-Care heading into the previous legislative session, which was addressed by a temporary infusion of additional state funding, coupled with a significant increase in fees and reduction in benefits. The fund continues to run at a deficit.

Rep. Schaefer asked what impact a pay increase would have on the pension fund. Guthrie indicated that if all teachers saw a raise, there would be a negative short-term impact for TRS as a result of higher salary calculations for retiring members without the benefit of higher contributions. Guthrie suggested this could be mitigated by phasing in the salary increases’ impact on the calculation of a member’s highest five years of earnings. Guthrie suggested the short-term impact on TRS-Care would be positive.

Asked by Rep. Stucky how much it would cost to make TRS-Care sustainable, Guthrie suggested it would take more than $12-15 billion to create a corpus sufficient to produce funding as a result of investment returns. Even then, that process would take some time to get up and running. The deteriorating value of TRS-Care has led many retirees to leave the program, which exacerbates the financial stresses facing it. Guthrie added that the population was beginning to stabilize.

TRS-ActiveCare, which allows smaller and mid-size school districts to enjoy the benefits of group coverage through a combined risk pool, also faces affordability challenges due to statutory restrictions on how that program is funded. Five percent of districts – primarily the state’s largest districts, such as Austin and Houston – have opted out of TRS-ActiveCare. Last session, legislation was considered to allow districts a one-time opportunity to opt in or opt out, but such a bill was not passed ultimately.

House committee discusses teacher pensions, health care

The House Committee on Pensions met Thursday morning in Dallas to discuss items listed under the committee’s interim charges, including the Teacher Retirement System (TRS) of Texas.

The committee met in the chambers of the Dallas City Council, which oversees pensions for the city’s police and firefighters that have come under scrutiny as of late. Dallas Mayor Mike Rawlings was the first witness to testify, thanking the committee for legislation dealing with issues pertaining to Dallas police and firefighter pensions and updating members on changes the city has put in place since the legislation’s passage.

House Pensions Committee meeting May 10, 2018 in Dallas.

Executive Director Brian Guthrie testified for TRS, laying out the basics of the $152 billion trust fund that serves 1.5 million active and retired members. The fund earned a return of 12.6 percent for fiscal year (FY) 2017, under an assumed rate of return of 8 percent. The fund carries $35.5 billion of unfunded liability and is 80.5 percent funded with an amortization period of 32.2 years, which Guthrie noted will change if the assumed rate of return is lowered. TRS manages two major healthcare programs: TRS-ActiveCare for active teachers and TRS-Care for retirees. Guthrie testified that TRS undertook a study in 2013 looking at the fund’s defined benefit structure, and will be producing an updated study this fall.

Turning to health care, Guthrie described TRS-Care as a “pay as you go plan.” The state’s contribution to the plan is 1.25 percent of active employee payroll, while school districts contribute .75 of active employee payroll and active employees contribute .65 percent of their paycheck. Retirees contribute to the plan through premiums. The plan faced a $1 billion projected budget shortfall heading into the last legislative session, and lawmakers of the 85th Texas Legislature put $700 million into the system in order to keep the fund from folding. While the infusion was able to prevent retirees from losing their health care, it wasn’t enough to avoid increases in costs and reductions in benefits.

Even with the changes, which included increasing premiums, the fund faces a $400-600 shortfall heading into the next biennium and ongoing shortfalls moving forward. Guthrie attributed the increase to legislation accompanying the added funding that directed the agency to ease cost increases. Guthrie indicated the primary problem is with the fundamental design of the funding formula, noting that healthcare costs are increasing far more quickly than revenue received from active employee payroll, which is the basis for the funding formula.

The largest cost increases are associated with plans that include coverage for dependents, and TRS initially offered retirees the option of permanently leaving TRS-Care for an insurance plan on the private market. Chairman Dan Flynn (R-Canton), members of the committee and legislators representing the Dallas/Fort Worth Metroplex pressed Guthrie to find a way to protect benefits, in particular prescription drug costs. Guthrie testified that the agency is studying all possible avenues, but the fund design presents the largest challenge.

Finally, Guthrie explained TRS-ActiveCare as a group insurance program for small to midsize school districts that would be otherwise unable to provide their own insurance programs. The state provides $75 per member, per month through the school finance formulas, districts contribute a minimum of $150 per month, and individual members are responsible for the remainder. Minimum state and district contribution levels have not changed since the plan’s inception in 2002, and employees’ share of the premiums has increased to 60 percent from 30 percent over the last 14 years. Because of rising healthcare costs, TRS board members voted at their most recent meeting to raise premiums for individual members between five and nine percent, or seven percent on average.

Because TRS-ActiveCare is funded through the school finance formulas, Guthrie suggested that any changes to TRS-ActiveCare would best be addressed as part of lawmakers’ broader efforts to reform the school finance system.

House Public Education Committee Chairman Dan Huberty (R-Houston) sharply questioned Guthrie over the board’s anticipated July vote to lower the fund’s assumed rate of return to 7.5 percent from 8.0 percent, despite returning 12.6 percent for FY 2017. This would cost an additional $1.2 billion on top of the $400-600 extra needed for TRS-Care, for a total ask of $1.6 billion on top of the $3 billion in base funding already designated for TRS. Guthrie testified that the agency’s fiduciary responsibility requires staff to provide an accurate estimate of what the fund is anticipated to produce.

A representative from Arlington ISD asked the board to consider allowing school districts with more than 1,000 employees to opt out of TRS-ActiveCare and provide their own insurance programs, pointing out that family healthcare costs under the TRS-ActiveCare high-deductible plan could account for more than a third of a first-year teacher’s annual salary. Chairman Huberty noted that such an arrangement could adversely impact TRS funding by reducing the broader pool of active TRS members.

Texas Retired Teachers Association (TRTA) Executive Director Tim Lee thanked the Texas Legislature for making the minimum changes necessary to keep TRS-Care from failing entirely. Lee suggested that 14 years may have been too long to go without increasing premiums, and pointed to the Employee Retirement System (ERS) as an appropriate benchmark for TRS. Going forward, Lee testified the only long-term solution is pre-funding the program, which would be even more costly than migrating TRS members to ERS. Lee indicated that retirees will be unable to countenance further cost increases, and noted that 36,400 people have decided to leave TRS-Care for the individual market.

Staff from the Pension Review Board (PRB) testified regarding the agency’s efforts to improve defined benefit programs. The board has ordered staff to develop an online dashboard of Texas public pension data, to study potential legislative recommendations regarding how systems whose funding is set by legislative statute can respond to changes in market systems, to study how systems of scale could be utilized to improve groups of smaller plans, and to conduct intensive actuarial reviews of systems with risk that threaten their long-term stability. PRB staff noted that ERS has already lowered its estimated rate of return to 7.5 percent from 8 percent, which TRS is currently contemplating.

The committee then opened the table to public testimony, and dozens of retired teachers voiced their concerns regarding healthcare and the defined benefit structure of the TRS pension program. Many shared heartbreaking stories of seeing fixed incomes virtually consumed by skyrocketing premiums even before paying the increased costs for services and medication. Retirees also expressed concerns regarding changes to the assumed rate of return.